Bank Rules in Xero: Step-by-Step Guide for Faster, Cleaner Reconciliation
Setting up bank rules in Xero is one of those small, upfront tasks that pays for itself every time you open the bank reconciliation screen. By teaching Xero to recognise regular charges and propose an automatic allocation of them, you free yourself from the drudgery of labelling the same subscription fee, toll top-up or bank charge month after month. This guide walks you through which transactions make ideal rule candidates, when to steer clear, and exactly how to build and test rules so your bookkeeping stays efficient and accurate.
1. Why use bank rules?
Consistency every time. Xero applies the exact coding you specify, so the same subscription or fee never wanders into the wrong expense account.
Speed. One rule can clear dozens of lines a month, cutting reconciliation from minutes to seconds.
Lower error risk. Fewer manual clicks means fewer typos, missed GST codes or accidental duplicates.
Easy hand-over. Anyone who picks up the file can see the logic in the Rules list, instead of guessing why last month’s charge went to a different account.
2. Good candidates for bank rules
Anything that lands in your bank feed with the same narration text, the same pattern and the same destination account every time is a strong contender for a rule. Think of charges you see month after month that always belong in one expense bucket with a single GST treatment: say, the “MONTHLY ACCOUNT FEE” from your bank or the “LINKT TOLL” top-up for your car. Because those lines are predictable, you can set up Xero to recognise them and propose the bank rule match for you to confirm with a single click.
Typical examples include:
Bank fees and transaction charges - typically consistent wording each time such as ‘Bank fee’ or ‘transaction fee’
Cloud-software subscriptions – Xero, Microsoft 365, Google Workspace, Canva, Zapier, antivirus and similar services that bill on a fixed cycle.
Motorway toll top-ups – automatic debits with consistent text.
Fixed-amount office rent – the landlord’s direct debit appears with the same description each month.
Utility direct debits – electricity, internet or water accounts that draw on the same date with the same narration.
Merchant service fees – Stripe, PayPal or Square charges that include the word “Fee” and only ever go to one expense category.
Inter-account transfers – regular, clearly labelled moves of cash between trading, savings or loan accounts that you have in Xero.
If a transaction is repetitive, predictable and always coded the same way, a bank rule will save you clicks and keep your coding consistent.
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VERY IMPORTANT NOTE:
For bank rules, it creates a ‘spend money’ transaction with no attached supporting documentation. So you wouldn’t make a bank rule for any transaction that you are going to add as a Supplier Bill in Xero or upload receipts from Hubdoc or Dext to Xero Bills. This would create a duplication.
If you have a bank rule in place, this means you need to keep your supporting documentation elsewhere for your record keeping obligations ie. in your cloud storage, or just archived in Hubdoc but not pushed to Xero for these transactions.
3. When to avoid bank rules
Supplier bills already captured by Dext/Hubdoc or directly entered into Xero Bills
One-off or asset purchases
Bills that mix GST-free and taxable components (for example, insurance with stamp duty). You can do split these transactions with a bank rule, but it’s more advanced. Start with simple single line items.
4. Step-by-step – create your first rule
I highly recommend starting from a real life example of the transaction that you want to create the rule from, when you see one on your bank feed because this shows you exactly how the transaction shows up in Xero.
Locate the transaction on your bank feeds that you would like to create a Bank Rule for.
On that row, dropdown the Options menu and choose Create Bank Rule
Section 1 shows matching logic. If there are multiple conditions rows shown, decide if you want the rule to match All of the conditions or Any.
Examine what is proposed for the conditions and refine if it if required. Remove any unique identifier numbers or dates that may vary with each transaction and change it to condition contains rather than equals.
Section 2 - Choose the existing Contact card or create a new one for the supplier
Section 3 - Set up how you want it to allocate the transaction. Most users choose the section labelled ‘With any remainder” and enter a Description, choose the Account eg. expense account for Bank Fees and the Tax Rate to apply ie. GST Free on Expenses.
Direct debits from overseas vendors normally need the GST code set to GST Free. Check the invoice documentation they provide before setting up the rule.
Section 5 - Select the bank accounts the rule applies to and give the rule a clear name.
Click Save
Check the rule has triggered for your transaction. If the conditional logic has been done correctly it should match the rule for the line you have on the bank feeds. If it doesn’t, refer to the section below on what to do if your Bank Rules aren’t working.
Step by step demonstration video of how to create a bank rule in Xero.
5. Xero Bank Rules not working?
You can review and fine-tune a bank rule whenever it stops firing as expected. In the bank account screen choose Manage Account → Bank Rules, then open the Spend Money, Receive Money or Transfer tab that holds your rule. Click Edit.
In Section 1 check whether the rule is set to match Any or All of the listed conditions.
Next, look at each condition. If the payee line on the bank feed always starts with the same words but then adds a date or unique code, replace the full text with only the stable words and switch the test to Contains rather than Equals. Rules usually fail because the criteria are too strict.
Keep the flip side in mind, criteria that are too loose can trigger on the wrong lines. A classic trap is matching on “BP” for fuel and accidentally picking up any transaction that includes “BPAY”. Aim for the narrowest possible, unchanging phrase that still excludes everything else.
Check whether the rule is specifying the wording must be in a particular field such as Payee. Perhaps the bank is now supplying that information in the Reference field. You can change the Field to Any Text Field so that it will match regardless of which field the wording is provided in.
Watch the video below for a demonstration of some of the common issues that stop Xero bank rules from working.
